I did an interesting exercise last month, I called my insurance company and asked them if I was due for a reduction in premiums due to our cars being a few years older. I figured that since they are older, they are obviously worth less and should therefore cost less to insure. The very nice insurance lady did take a look and informed me that we are on the absolute best insurance rate already and therefore the only possible way of reducing our monthly premium is to insure the car for less by adjusting whether we insure for Trade, Retail or Market Value.

What does Trade, Market Value or Retail mean?

These are the 3 values that your car could be worth derived from a little book called “Mead & McGrouther Auto Dealers Guide” (or commonly known as M&M in the automotive trade) which both insurance companies and car dealers use to value a new and used car. It’s a book produced by Trans-Union and it lists the Trade-In and Retail prices of all used cars available in South Africa based on historic data – that would mean the sales price of cars in the previous year(s). The Market Value is not in the M&M as car dealers are not concerned with it, as it’s the price that you are likely to get if you sell your car privately to another private buyer. It’s therefore a price between Trade and Retail and is available to the insurance companies for the purpose of calculating your monthly insurance premium.

So let’s take a look at what this means for the replacement value of your car as you are always asked what value you would like to insure your car for.

Trade-In Value, or Trade Value Insurance:

This is the price that a car dealer would typically offer you for your old car if you wanted to buy another car from him. They typically offset the cost of the new car against this offered Trade-In Value. This is the lowest official amount that you can insure your car for. Be aware that if you go for this trade-in value, you will not be able to replace your car for its current value if it‘s stolen or declared a write off. You had best know a car dealer or private seller who is prepared to sell you a car at trade value – which is unlikely!

Retail Value Insurance:

The retail value is derived from the price that the average car has sold or retailed for from a car dealership. I say average, as the M&M guide is a guide only and dealers are open to sell a car for any price they can. Obviously they will try for the highest price they can get! For example, a car with low mileage for its year is more attractive to a buyer and therefore worth more than a high mileage car. Average mileage for a car is about 20,000km per year. This would mean 10,000km per year would be low and +25,000km per year would be high. A three year old car with 75,000km would still be classed as a “high miler” even though it’s done less than 100,000km and is relatively new. Conversely, a seven year old car with 70,000km on the clock would be considered a “low mileage” car even though it’s older. The retail price guide considers the average mileage only, and it’s unlikely that your insurer will pay too much attention to your specific cars odometer. It certainly is worth mentioning though as insurers differ.

Market Value Insurance

The Market Value is the average price that the car sold for on the open market – that is to say from private seller to private buyer – not through the hands of a car dealer. As this is a bit of an unknown entity, it’s more or less half way between Trade and Retail. The same rules apply to low and high mileage cars – where the average is about 20,000km per year.

So what should I insure my car for then?

CarInsuranceNow recommends that you insure you car for the amount that it would cost to replace its current value. No point in going for cheaper premiums if you opt for the Trade Value – you could find yourself 20%-30% short on the money needed to replace your car. It is however, up to you, so choose wisely.

Don’t forget the Excess Cover

Affordable monthly premiums are certainly what everybody aims for, but don’t forget to check on the car insurance excess cover and consider the total package offered.